Apple (AAPL) should fire its CEO, Tim Cook, and investors should stay away from Apple stock until he’s gone.
Under Cook, the new products launched by AAPL have generated relatively anemic revenue and little excitement among consumers. Moreover, since Cook took the helm nearly four and a half years ago, the iPhone is the only AAPL product that has repeatedly produced reliable growth.
Consequently, AAPL stock is almost entirely dependent on the success of the iPhone, which competes in the slow-growth, increasingly saturated, high-end smartphone market. Given Apple’s inability to successfully innovate under Cook, as well as the company’s reliance on the iPhone, Apple stock clearly deserves its current low multiple.
AAPL stock is unlikely to rise significantly under Cook’s leadership, and could easily drop further if its upcoming iPhones prove to be uninspiring. Given Cook’s record, I believe that the latter scenario is more likely than not, and consequently advise investors to sell their Apple stock.
Apple Firing on One Cylinder
The performance of Apple’s new products over the last few years should embarrass AAPL in general and Cook in particular.
Apple Watch is seen as having only a slight edge over competing Android products, and only 7 million units of the products were sold as of November, some seven months after the product was launched, Forbes quoted research firm Canalys as saying. In the third quarter of last year, start-up company Fitbit (FIT) sold 4.8 million of its wearable products, the company reported.
The fact that a start-up company’s wearables are selling at a significantly higher run rate than those developed by the largest, most popular tech company in the world does not speak well of Apple’s design abilities or its marketing prowess under Cook’s leadership.
Similarly, adoption of Apple’s mobile payments system, Apple Pay, has been lackluster. In October, pyments.com wrote that “the numbers overall (for Apple Pay) just aren’t compelling yet.” Of course, Apple Pay was launched after Alphabet (GOOG, GOOGL) and PayPal (PYPL) unveiled similar solutions.
Some websites cheered because Apple Music, the company’s Spotify subscription copycat, managed to attract 10 million subscribers six months after it was released. But, given that there are nearly 500 million iPhone users, 10 million sounds quite weak. Convincing only 2% of the installed base to buy a subscription after six months isn’t cause for celebration. Cook can’t seem to get the company’s TV streaming service off the ground, either.
In late 2012, there were questions about how long Tim Cook would be able to stick around. However, he managed to survive, largely because he boosted iPhone sales by taking the obvious step of releasing iPhones with larger screens. Given the success that Samsung had previously had with large screen phones, the move was a no-brainer. But, importantly for Cook and AAPL shareholders, the resulting jump in iPhone sales sparked a rally in Apple stock and enabled Cook to keep his job.
Also helping AAPL stock was Carl Icahn’s $3 billion investment in the tech giant, and Apple’s decision, after a great deal of nagging by Icahn, to buy back $18 billion of its own stock. More recently, Apple stock and, by extension, Cook, have been boosted by the huge growth in iPhone sales in China.
Why Apple Stock Will Continue to Struggle
So Apple stock rose because of an obvious move made in 2014, an investment made by Icahn, financial engineering, and increased demand in a country whose economy is slowing significantly. AAPL stock didn’t jump thanks to ingenious moves by Cook, and none of the previous positive catalysts can be depended upon to boost Apple stock going forward.
Moreover, some analysts expect iPhone sales to drop in 2016. It looks like the iPhone 6s and iPhone 6, which were launched in September 2015 and featured 3D Touch technology, didn’t exactly wow consumers. The iPhone 7, expected to be launched in September 2016, is rumored to feature wireless charging and Touch ID touchscreen. Neither of those technologies is likely to spark record iPhone sales.
Given all of these circumstances, it’s hardly surprising that Apple stock hasn’t performed well over the past several months. In fact, AAPL stock is down around 14% over the past three months, underperforming the market by a wide margin.
It’s noteworthy that, unlike AAPL, other large tech companies have managed to generate significant revenue growth from non-core products over the last four and a half years. Amazon’s (AMZN) cloud service has grown significantly, as has Alphabet’s YouTube, while video ads have become a meaningful revenue source for Facebook (FB).
By contrast, Apple is basically a one-trick pony, and its trick looks poised to grow slowly, if at all, going forward. The company needs to hire a new leader who can develop a new, faster growing trick or two. Until it does so, investors should avoid Apple stock.
As of this writing, Larry Ramer did not hold a position in any of the aforementioned securities.
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